Evaluate whether consolidating multiple debts into one loan will save money. Compare APR, monthly payments, and total interest costs to make an informed decision.
Debt consolidation involves combining multiple debts into a single loan, typically with the goal of securing a lower interest rate, reducing monthly payments, or simplifying debt management. This calculator helps determine whether consolidation makes financial sense for your situation.
The key is comparing the true cost of your current debts versus the consolidation loan, including all fees and the time value of money. A good consolidation loan should reduce either your monthly payment, total interest paid, or both.
Best for consolidating high-interest credit cards
Good for short-term consolidation with disciplined payoff
Suitable for large debt amounts with available home equity
| Scenario | Current Situation | Consolidation Benefit | Risk Level |
|---|---|---|---|
| High Interest Rates | Multiple cards at 18-25% | Lower rate saves money | Low |
| Multiple Payments | 5+ different due dates | Simplified management | Low |
| Variable Rates | Rates increasing monthly | Fixed rate protection | Medium |
| Cash Flow Issues | Struggling with payments | Lower monthly payment | Medium |
| Home Equity Available | Equity to tap for lower rates | Significant savings | High |
| Loan Type | Credit Score | Debt-to-Income | Typical APR Range |
|---|---|---|---|
| Personal Loan | 650+ | <40% | 6-36% |
| Balance Transfer Card | 700+ | <30% | 0-25% |
| Home Equity Loan | 620+ | <43% | 4-12% |
| HELOC | 700+ | <43% | 4-15% |
| 401(k) Loan | N/A | N/A | Prime + 1-2% |
| Advantages | Disadvantages |
|---|---|
|
• Lower interest rates • Simplified payments • Fixed payment schedule • Potential credit improvement • Reduced stress |
• Upfront fees and costs • May extend payoff time • Risk of accumulating new debt • Potential credit score dip • Loss of card benefits |
Mathematically optimal for minimizing interest
Psychological wins but may cost more in interest
Temporary relief, requires disciplined payoff
Not addressing spending habits: Consolidation without behavior change often leads to more debt.
Focusing only on monthly payments: Lower payments may mean higher total costs over time.
Ignoring fees: Origination fees, balance transfer fees, and closing costs impact true savings.
Using home equity carelessly: Putting your home at risk for unsecured debt elimination.
Missing promotional periods: Not paying off balance transfer cards before rates increase.
1. Calculate total current debt costs: Include all interest, fees, and payment timelines.
2. Shop for the best consolidation option: Compare APRs, terms, and fees from multiple lenders.
3. Create a debt elimination plan: Set a clear timeline and payment strategy.
4. Stop accumulating new debt: Close or put away credit cards to prevent relapse.
5. Consider professional help: Credit counseling for complex situations or large debt amounts.